Q2 2024 Global Medical REIT Inc Earnings Call

Rex Langer: Everyone. Thank you for watching.

Operator: Greetings and welcome to the Global Medical REIT Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. The brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Steve Swett, Director of Investor Relations. Thank you, Mr. Swett. You may be seated.

Speaker Change: Greetings and welcome to Global Medical REIT 2nd Quarter 2024, Earnings Conference Corner.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Stephen Swett: Thank you. Good morning, everyone, and welcome to Global Medical REIT's second quarter 2024 Earnings Conference. On the call today are Jeff Busch, Chief Executive Officer, Alfonzo Leon, Chief Investment Officer, and Bob Kiernan, Chief Financial Officer. Please note the use of forward-looking statements by the company on this conference call. Statements made on this call may include statements which are not historical facts and are considered forward-looking.

Speaker Change: Thank you. Good morning, everyone, and welcome to Global Medical REIT's second quarter 2024 earnings conference call. On the call today are Jeff Busch, Chief Executive Officer, Alfonzo Leon, Chief Investment Officer, and Bob Kiernan, Chief Financial Officer.

Robert Kiernan: FFO attributable to common shareholders and non-controlling interest in the second quarter was 20 cents per share and unit, down one cent from the prior year quarter. And AFFO attributable to common stockholders and non-controlling interest was 22 cents per share. An important element to our prudent approach is utilizing select dispositions to fund a portion of our growth. We continue to selectively sell assets as we move forward with our long-term prospects at this location.

Speaker Change: Furthermore, actual results may differ materially from those described in the Portland Key Statements.

Speaker Change: and will be affected by a variety of risks and factors that are beyond the company's control, including, without limitation, those contained in the company's 10-K for the year ended December 31, 2023, and its other SEC filings.

Speaker Change: The company assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Speaker Change: Additionally, on this call, the company may refer to certain non-GAAP financial measures, such as funds from operations, adjusted funds from operations, EBITRE, and adjusted EBITRE.

Speaker Change: You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers in the company's earnings release and its filings with the SEC. Additional information may be found on the Investor Relations page of the company's website at www.globalmedicalreit.com.

Speaker Change: I would now like to turn the call over to Jeff Busch, Chief Executive Officer of Global Medical REIT. Jeff?

Jeff Busch: At the end of the second quarter, portfolio occupancy was 96.2% with a weighted average lease term of 5.8 years.

Jeff Busch: For the second quarter, our net loss attributable to common shareholders was $3.1 million, or $0.05 per share, compared to net income attributable to common shareholders of $11.8 million, or $0.18 per share, in the second quarter of 2023.

Jeff Busch: FFO attributable to common shareholders and non-controlling interest in the second quarter was $0.20 per share and unit, down $0.01 from the prior year quarter.

Jeff Busch: and our AFFO attributable to common stockholders and non-controlling interests with $0.22 per share and unit, down $0.01 from the prior year quarter.

Jeff Busch: During the quarter, we entered into a purchase agreement.

Jeff Busch: for a 15-property portfolio.

Jeff Busch: at an 8% cap to be completed in two tranches. These properties are fully occupied and leased under triple net and absolute net leases.

Jeff Busch: We expect to complete the acquisition of the 10 remaining properties during the fourth quarter of 2024.

Jeff Busch: We are optimistic about the overall acquisition market in our asset class and are pleased with the improvement in market conditions.

Jeff Busch: As we think about our growth opportunity, we are focused on maintaining a strong balance sheet. An important element to our prudent approach is utilizing select dispositions to fund a portion of our growth.

Jeff Busch: Our dispositions can be part of an asset recycling program or in response to expectations regarding long-term property performance.

Jeff Busch: During the quarter, we closed on the sale of a medical facility in Mishawaka, Indiana, receiving gross proceeds of $8.1 million, and in July , we closed on the sale of a medical facility in Panama City, Florida, that we generated $11 million of gross proceeds.

Jeff Busch: We continue to selectively sell assets as we move forward.

Jeff Busch: in the company's portfolio.

Jeff Busch: Bob will provide an update and more details regarding the financial assets of our steward relationship in his remarks.

Jeff Busch: Overall, I'm pleased with our second quarter results and we want to thank the entire team for their hard work and contribution to our results. With that, I turn the call over to Alfonzo.

Alfonzo Leon: We remain actively engaged with a wide range of physician groups, brokers, and corporate sellers to identify acquisition opportunities into the Detroit MSA lease to Henry Ford, a $7 billion revenue health system with an A2 credit rating. The lease at this property was set to expire at the end of the year, and our decision to dispose of this property was based on our lease renewal expectations and outlook for finding a suitable tenant replacement.

Speaker Change: encompassing roughly 95,000 feasible square feet.

Alfonzo: The ability to close the deal in two tranches provides us with additional flexibility to prudently fund a transaction. As a reminder, the second tranche of this deal is currently under contract.

Speaker Change: The five properties in the portfolio include a family medicine clinic in Cerritos in Southeast LA leased to PIH Health, a regional health network with three hospitals and 26 clinics with an A rating.

Speaker Change: Two ophthalmology-focused outpatient clinics into the Detroit MSA lease to Henry Ford, a $7 billion revenue health system with an A2 credit rating.

Speaker Change: A multi-specialty clinic and surgery center in Minot, North Dakota, leads to Trinity Health, the region's dominant health system, with three hospitals and 18 clinics, with a BB- rating.

Speaker Change: The property was originally part of a four-property portfolio the company purchased in 2019.

Alfonzo Leon: The property had a net book value of approximately $8.9 million at the time of sale. We plan to leverage our competitive advantages, including scale, access to capital, and the potential use of OP unit deal structures, to unlock opportunities and drive value.

Speaker Change: The property had a net book value of approximately $8.9 million at the time of sale. This sale was part of our general asset recycling process, whereby we identify assets that we believe can be sold at gains and at proceeds reinvested accretively by the company.

Speaker Change: Looking ahead, we will remain persistent and disciplined in seeking opportunities that align with our investment strategy and underwriting standards.

Speaker Change: I'd now like to turn the call over to Bob to discuss our financial results. Bob?

Robert Kiernan: At the end of the second quarter of 2024, our portfolio consisted of gross investments in real estate of $1.4 billion and included $4.7 million of total leasable square feet. 96.2% occupancy, 5.8 years of weighted average lease term, 4.6 times rent coverage, but 2.2% weighted average contractual rent escalations.

Bob: At the end of the second quarter of 2024, our portfolio consisted of gross investments in real estate of $1.4 billion and included $4.7 million of total leaseable square feet.

Robert Kiernan: In the second quarter of 2024, our total revenues decreased by approximately 6% compared to the prior year quarter to $34.2 million, due primarily to the impact of dispositions that were completed in 2023. G&A expenses for the second quarter of 2024 were $4.6 million compared to $4.5 million in the second quarter of 2023. The increase primarily resulted from an increase in non-cash LTIP compensation expense, which was $1.3 million for the second quarter of 2024 compared to $1.1 million for the same period in 2023, partially offset by a decline in general corporate expense.

Bob: In the second quarter of 2024, our total revenues decreased by approximately 6% compared to the prior year quarter to $34.2 million, due primarily to the impact dispositions that were completed in 2023.

Bob: Total expenses for the second quarter of 2024 were $32.8 million compared to $35 million in the prior year quarter.

Bob: The decrease was primarily due to disposition transactions that were completed during 2023 and lower interest expense.

Bob: Our interest expense in the second quarter was $7 million compared to $8.5 million in the comparable quarter of last year, reflecting lower borrowing rates due to lower leverage, the impact of our interest rate swaps, and lower average borrowings compared to the prior year period.

Bob: Our operating expenses were $7.2 million for both the second quarter of 2024 and the prior year quarter.

Bob: Regarding the second quarter 2024 expenses, $4.9 million dollars related to net leases where the company recognized a comparable amount of expense recovery revenue and $900,000 dollars related to gross leases.

Bob: G&A expenses for the second quarter of 2024 were $4.6 million compared to $4.5 million in the second quarter of 2023.

Bob: Looking ahead, we expect our G&A expenses in the second half of 2024 to be in the range of $4.4 million and $4.6 million on a quarterly basis.

Bob: Net loss attributable to common stockholders for the second quarter of 2024 was 3.1 million dollars, 5 cents per share, compared to net income attributable to common stockholders of 11.8 million dollars, or 18 cents per share, in the second quarter of 2023.

Robert Kiernan: The loss in the second quarter of 2024 was primarily due to a $3.4 million loss recognized on the sale of the medical facility in Mishawaka, Indiana. AFFO attributable to common stockholders and non-controlling interest in the second quarter of 2024 was $15.7 million, or $0.22 per sharing unit, compared to $15.9 million, or $0.23 per sharing unit, in the second quarter of 2023. At June 30, 2024, we had $620 million of total gross debt with a weighted average remaining term of 2.5 years.

Bob: AFFO attributable to common stockholders and non-controlling interest in the second quarter of 2024 was $15.7 million, or $0.22 per sharing unit, compared to $15.9 million, or $0.23 per sharing unit, in the second quarter of 2023.

Bob: Moving on to the balance sheet. As of June 30, 2024, our gross investment in real estate was $1.4 billion.

Bob: At June 30, 2024, we had $620 million of total gross debt with a weighted average remaining term of 2.5 years.

Robert Kiernan: At quarter end, 83% of our total debt was fixed rate debt. Our leverage ratio was 43.8%, and our weighted average interest rate was 3.89%. As Jeff mentioned, during the quarter, Steward Healthcare announced that it would file for Chapter 11 bankruptcy. At the time of the bankruptcy filing, Steward represented 2.8% or $3.1 million in the company's annualized base rent, of which 86% related to our facility located in Beaumont, Texas.

Bob: At quarter end, 83% of our total debt was fixed rate debt, our leverage ratio was 43.8%, and our weighted average interest rate was 3.89%.

Bob: Lastly, as of today, the current unutilized borrowing capacity under the credit facility is $261 million.

Bob: As we consider funding options for the acquisitions that we have closed or are expected to close later this year, we will continue to be disciplined as we seek to maintain leverage in our target range of 40% to 45%.

Bob: Regarding capital expenditures on the portfolio, during the second quarter our cash spend was approximately 3.2 million dollars. Year-to-date through June 30th our cash outflows for capital expenditures were approximately 5.2 million dollars with slightly more than half of that related to tenant improvements.

Bob: As Jeff mentioned, during the quarter

Jeff Busch: Post-bankruptcy, the company has received base rent payments on its steward leases for the months of June , July , and August .

Speaker Change: In conclusion, as we look to the second half of the year, we believe that our strong portfolio and ample liquidity provide a solid foundation for our future growth. We are encouraged by our acquisition opportunities and look forward to sharing our progress with you.

Operator: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. The first question comes from the line of Austin Wurschmidt with KeyBank Capital Markets, Inc. Please go ahead.

Austin Wurschmidt: Great. Good morning, everybody. I was hoping to get some additional details regarding the $120 million investment pipeline. Maybe just starting with, you know, whether this amount includes the second tranche of the 15-property portfolio, or is the $120 million on top of that kind of remaining $50 million or so?

Speaker Change: Sure, so these are medical office buildings. I mean our focus has been on medical office buildings in our pipeline and geographically it's

Alfonzo Leon: It's in markets that are like the types of markets that we've been pursuing historically, and these are quality buildings with quality tenants.

Speaker Change: It's in markets that are like the types of market that we've been pursuing historically. And these are quality buildings with quality tenants.

Speaker Change: And as far as the cap rates on the $120 million, where would you expect that to shake out on average?

Jeffrey Busch: This is Jeff. I just want to add to that. It's a very exciting time, which I haven't said in a long time for us. You know, if interest rates start to fall as projected, and there are opportunities out there in our niche, at very attractive properties, good quality, like we bought the $80 million portfolio, extraordinarily good quality at an ACAP, and there are ACAPs and hires out there for us in our niche that we'll be able to absorb, and we could have a very good year of that.

Speaker Change: This is Jeff. I just want to add to that. It's a very exciting time, which I haven't said in a long time for us. You know, if interest rates start to fall as projected,

Speaker Change: That's helpful. And then just lastly, on the funding side, Jeff, you spoke about the asset recycling program.

Austin Wurschmidt: That's all for me. Thank you. Yeah. No, I agree.

Jeffrey Busch: Yeah, no, I agree with you. On disposition. We always look. There's properties out there that we could sell. If we could make a point to point two above, sometimes we sell, but we're really monitoring the equity side of the business too. The reason is if the Fed, which people think now after multiple times, brings the rates down, which is my belief it's finally going to happen, but we'll see. Our stock historically, the three times the market thought it was coming down had a really nice jump, and we could be very accretive for the properties we're going to buy.

Speaker Change: That's all for me. Thank you.

Speaker Change: Yeah, no, I agree with you on...

Speaker Change: But we're really monitoring also the equity side of the business. The reason is, you know, if the Fed, you know, which people think now after multiple times,

Jeffrey Busch: So it'd be a combination of selling properties at lower cap rates and making the spread, and also possibly raising money to acquire these new properties. It's really nice. This is the first time out there that the market has capitulated on the market of selling real estate has capitulated that the pricing is going to be substantially higher. So it matches to being accretive for us.

Jeff Busch: for the properties we're going to buy. So it would be a combination of selling properties at lower cap rates.

Operator: Juan Sanabria, BMO Capital Markets

Speaker Change: Appreciate the thoughts.

Speaker Change: Thank you. Next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

Juan Sanabria: Hi, good morning, and thanks for the time. Just a question following up on the dispositions. Could you comment or provide the cap rates for what you sold in the second quarter and in July to date, recognizing there was some vacancy risk with the upcoming expiration?

Juan Sanabria: Hi, good morning and thanks for the time. Just a question, following up on the dispositions, could you comment or provide the cap rates for what you sold in the second quarter and in July to date, recognizing there was some

Speaker Change: vacancy risk with the upcoming expiration.

Alfonzo Leon: Sure, so on the Panama City asset, we sold that for a 7.1 cap. And on the Mishawaka asset, I mean, again, just to point out, I mean, this is one that we felt like the releasing prospect was going to be very difficult, and it made sense to sell, and we had found a buyer that was an owner-user of the property. And keep in mind, too, that this was part of a portfolio that we acquired back in 2019, a $94 million portfolio, and we allocated roughly $16 million of that value to this property.

Speaker Change: Sure. So, on the Panama City, we sold that for a 7.1 cap.

Speaker Change: And on the Mishawaka asset, I mean, again, just to point out, I mean, this is one that

Speaker Change: And keep in mind, too, that this was part of a portfolio that we acquired back in 2019, a $94 million portfolio, and we allocated roughly $16 million of that value to this property.

Alfonzo Leon: And since then, we've collected more than $9 million in rent from this property on an A-rated system, and we were able to sell it for just over $8 million. And the other three properties have outperformed. We got a 10-year renewal on the Las Vegas property. On the Oklahoma property, we got an expansion and a 14-year renewal. And the Surprise, Arizona, property had a long-term lease to begin with, and these are all properties that have very strong rent coverage. And so, from our perspective, you know, when we bought the portfolio, we underwrote it as a package. And as a whole, this portfolio has performed very well.

Alfonzo Leon: But what was the rent accrued in the second quarter with regard to the Wisconsin asset?

Speaker Change: We got a 10-year renewal on the Las Vegas property. On the Oklahoma property, we got an expansion and a 14-year renewal. And the Surprise, Arizona property had a long-term lease to begin with, and these are all properties that have very strong rent coverage.

Speaker Change: And so, from our perspective, you know, when we bought the portfolio, we underwrote it as a package. And as a whole, this portfolio has performed very well.

Alfonzo Leon: Yeah, just get back into the cap rate. Oh, sure. I mean, it was North about, you know, it's a low double-digit cap rate.

Speaker Change: The Wisconsin Asset.

Juan Sanabria: Great. Thanks.

Speaker Change: Yeah, just get back into the cap rate.

Robert Kiernan: And then Bobby spoke to me about expected retention on upcoming expirations for the balance of the year. So, I guess, what is then the implied occupancy that we should think about by year-end, and does that have any impact on FFO4Share with, Presumably, some expected move-outs or timing before you release. That's crazy, huh?

Speaker Change: expected retention on upcoming expirations for the balance of the year. So I guess what what is then the implied occupancy that we should think about by year-end and does that have any impact to FFO for share?

Speaker Change: presumably some expected move-outs or timing before you release.

Robert Kiernan: Sure, I mean, as we look ahead to the expirations that are coming up in the second half of the year, you know, we're still projecting, I mean, as we've said on previous calls, pretty steady occupancy and right around this kind of 96% plus, plus or minus, and with the trending, you know, toward a little bit plus that 96. So, in that 96%, you know, and above type range, and from an earnings perspective, again, sometimes there are renewals that have, you know, free rent periods from a timing perspective.

Speaker Change: That's crazy, huh?

Speaker Change: ninety-six percent plus, you know, plus or minus and with trending, you know, toward a little bit plus, that's that ninety-six so in that ninety-six percent and above tech range. And from an earnings perspective, again, sometimes there are renewals that have free rent periods from a timing perspective.

Robert Kiernan: You're subject to that from a long-term perspective or in the short term, but overall, I mean, we're projecting, you know, solid occupancy as we look ahead, and it shouldn't cause that much volatility from an earnings perspective. And just one last one for me, if you don't mind, on the steward space, I guess in particular the Beaumont lease. How does that compare to the kind of current market level? And I guess if there is, if you have to release it, presumably that is the case, then how much market-to-market could we expect, either positive or negative, in your initial assessment?

Speaker Change: subject to that from a long-term perspective or in the short term, but but overall I mean there's we're projecting you know solid occupancy as we as we look ahead and it shouldn't be provide that much volatility from a from an earnings perspective.

Speaker Change: And just one last one for me, if you don't mind, on the steward space. I guess in particular the Beaumont lease. How does that compare to kind of current market levels?

Speaker Change: I guess if there is, if you have to release it, presumably that is the case, then how much mark-to-market could we expect, either positive or negative, in your initial assessment?

Alfonzo Leon: and Initial Assessment.

Jeffrey Busch: So we're still in the process, but I mean, yeah, it's going to be very comparable to what we had.

Speaker Change: So, we're still in progressions, but I mean, yeah, it's going to be very comparable to what we had.

Jeffrey Busch: Yeah, I just want to comment on the Stewart property. It's an excellent property that is in pretty decent demand. So, you know, that's why we're optimistic about the release and the bucket on that.

Speaker Change: Thank you.

Speaker Change: Yeah, I just want to comment on the Stewart property. It's an excellent property that is in pretty decent demand. So, you know, that's why we're optimistic about the releasing and the market on that.

Operator: The next question comes from the line of Rob Stevenson with Jenny Montgomery Scott. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Next question comes from the line of Rob Stevenson with Jenny Montgomery Scott. Please go ahead.

Robert Stevenson: Good morning, guys. Bob, what do you see? You indicated you'd gotten paid through June, July, and August on Stewart. Is it just the $800,000 reserves and the $100,000 of deferred rent write-off? Is that the only hit thus far by Stewart?

Rob Stephenson: Good morning, guys. Bob, what is the...

Speaker Change: You indicated that you had gotten paid through June , July , and August on Stewart.

Rob Stephenson: What is, is it just the $800,000 reserves and the $100,000 of deferred rent write-off? Is that the hit, the only hit thus far from Stewart? Or is there other, you know, may or something that you didn't get paid for as well that you think that you might down the road?

Robert Kiernan: Or is there another, you know, may or something that you didn't get paid for as well that you think you might? Right. Yeah, Rob, think of it as though, yeah, March, April, May, from an exposure perspective, as well as an extent from, Okay, and what's the cumulative of that March, April, May? So that's about that 800 to a million dollar type reserve because we're now incurring, you know, facing the operating expenses on that property, particularly as we think about keeping it in solid shape for renewal opportunities or releasing opportunities. And again, that's just a delta compared to having it be just a very straightforward triple net lease where the tenant is funding all the expenses. Okay.

Speaker Change: Right. Yeah, Rob, think of it as though, yeah, March, April , May from an exposure perspective as well as expenses.

Speaker Change: Okay, and what's the cumulative of that March-April-May?

Speaker Change: So that's about that $800 to a million dollar type reserve because we're now incurring, you know, facing the operating expenses on that property, particularly as we think about keeping it in solid shape for renewal opportunity or releasing opportunities.

Speaker Change: And again, that's just a delta compared to having it be just a very straightforward, you know, triple net lease where the tenant was funding all the expenses.

Robert Kiernan: And then I guess at this point, I mean, how fast is this moving? Are they likely to pay you for September and October, or is August basically the extent to which you guys think that you're going to get paid, and then it's up to a release process after that in order to get back to having this be cash flow positive? So with the bankruptcy process, it's not totally clear to us in terms of how they're managing their timeframe.

Speaker Change: Okay, and then I guess at this point.

Speaker Change: I mean how fast is this moving? Are they likely to pay you for September and October or is August basically the extent to which you guys think that you're going to get paid and then it's up to a releasing process after that in order to get back to having this be cash flow positive for you guys?

Speaker Change: So, with the bankruptcy process, it's not totally clear to us in terms of how they're managing their timeframe.

Robert Kiernan: So from our perspective, they have not yet rejected the lease, and pursuant to the bankruptcy, they would owe us base rent and expenses during the period subsequent to bankruptcy up through, you know, to the point where they would reject the lease. And so at this point, we're just collecting that rent post-bankruptcy. But it's not clear to us when that, you know, when their process is going to kind of move on and provide that kind of more clarity for us, even in terms of that final step.

Speaker Change: From our perspective, they have not yet rejected the lease, and pursuant to the bankruptcy, they would owe us base rent and expenses.

Speaker Change: During the period subsequent to bankruptcy up through you know to the point where they would would they would reject the lease. And so at this point we're we're just collecting that rent post bankruptcy. But it's not clear to us

Speaker Change: when that, you know, when their process is going to kind of move on and provide that

Robert Kiernan: But with that said, we have it staged and are kind of working off to the side, you know, very quickly as we can to have it staged for a quicker, as quick a transition as we could possibly have, recognizing that there would probably be, again, a modest transition period, a free rent element, things of that nature that could impact us between, again, the current situation and when we would onboard a prospective tenant. Okay.

Speaker Change: for more clarity for us even in terms of that that final step but with that said we have it staged and are kind of working off to the side you know very

Speaker Change: Again, we're trying to do this as quickly as we can to have it staged for a quicker, as quick a transition as we could possibly have, recognizing that there's probably, there would probably be a modest transition period, a free rent element, things of that nature that could impact us between, again, this is a very short, short time frame, and I think

Speaker Change: the current situation and when we would onboard a prospective tenant.

Alfonzo Leon: And then Trinity Health was replaced as your number five tenant by Team Health here in the second quarter. It sounded like from Alfonzo's comments, if I heard it right, that at least one of the five portfolio acquisitions you've completed thus far in the third quarter is leased to Trinity. Is any of these other acquisitions out of the five or the 10 expected to come in the fourth quarter or the likely closings of the $120 million that you're circling with existing top tenants or other tenants that will be pushed into the top five by these deals?

Speaker Change: Second quarter. It sounded like from Alfonzo's comments, if I heard it right, that at least one of the five portfolio acquisitions she completed in the first quarter.

Alfonzo Leon: There's not going to be a meaningful move into the top 10.

Alfonzo: Yeah, there's not going to be a meaningful move to the top ten.

Robert Kiernan: Okay, all right. And then last one for me, can you talk about the size and scope of the tenant watch list today versus the last couple of quarters? You know, one of your direct competitors is having issues with the geriatric and patient behavioral hospital tenant. You've got Stewart, Genesis, and some others. You know, operators are cracking here in what's still a relatively robust economy.

Speaker Change: You've got Stewart, Genesis, and some others, you know, operators are cracking here in what's still a relatively robust economy. If the economy starts to weaken here, you know, how...

Robert Kiernan: If the economy starts to weaken here, you know, how much more are you thinking that the tenant watch list will expand over the next sort of four quarters? So right now, we've talked in the past few quarters about, you know, Prospect Health in Q4, Steward in Q1, and those have been our primary tenants. Tenant-related items that we've had to deal with from an accounting and supporting perspective. And at this point, again, we continue to monitor our acute care facilities; we have one acute care hospital.

Speaker Change: Much more, you think, that the tenant watch list expands over the next sort of four quarters or so.

Speaker Change: And at this point, again, we continue to monitor our acute care, we have one acute care hospital.

Robert Kiernan: But, again, it is something that, again, we're very actively involved with. But at this point, I say we don't Demon, beyond that group that we're actively focused on. We also don't have any loans to two tenants that we would highlight or know either from and how we're managing the portfolio.

Speaker Change: But, again, it is something that, again, we're very actively involved with. But, you know, at this point, I'd point out to you, we don't have any, you know, anything that that's...

Speaker Change: beyond that group that we're actively that we're actively focused on. We also don't have any we don't have any loans to to tenants that you know we would highlight or know either from in how we're managing the portfolio.

Robert Kiernan: Okay, that's helpful.

Jeffrey Busch: I just want to add, I mean, the vast, vast majority of our business has been MOB work, and MOBs are strong out there, and in a downturn, they'd be strong. When we did purchase into some of the one acute hospitals and some other types of, you know, like surgical, like Beaumont and others, those were doing well, but, you know, after the pandemic and others and the billing system, the reimbursement system changed, they struggled more than you see that, but that's a very limited part of our portfolio. The vast, vast majority of our portfolio is, you know, absolute and triple net MOBs that are doing very well.

Speaker Change: Okay, that's pretty cool.

Jeffrey Busch: I guess one question that that poses then, Jeff and Alfonzo, given those comments and given that Alfonzo indicated that the vast majority, or almost all of the $120 million in your pipeline today are medical office buildings, for behavioral health or hospitals, are you still interested in doing them at all? Is it just requiring a much wider return that you need another 100, 150 basis points to make the risk worthwhile? Or is the focus here and for the immediate future just going to be the medical office, no matter what for you guys?

Speaker Change: and other MLBs that are doing very well.

Speaker Change: to do, you know, behavioral health or hospitals.

Jeffrey Busch: The market has turned so substantially for us to buy medical office buildings. Private equity does not get the bank lines that they had before, and rates, and a lot of the sellers are capitulating and saying, "Okay, the rates are higher now." So, we're finding, like we did early when we started, and then private equity during the pandemic saw that, you know, 99% of our tenants paid, whether they had patients or not, and moved into the MOB field.

Speaker Change: The private equity does not get the bank lines that they had before, and a lot of the sellers are capitulating and saying, okay, the rates are higher now.

Jeffrey Busch: Right now, we find it open again. I can't see, I can't say never, but I can't see us being in the medical, I mean, being in, definitely not in the acute hospital area. Rehabs, we got in early, and we like those, but I can't see us going into that field, and possibly reducing our exposure to them would probably be more of a future. I loved the MOB field, especially the absolute and triple net area.

Speaker Change: fields, especially the absolute and triple net area.

Operator: Okay, thanks guys. I appreciate your time this morning.

Speaker Change: Okay, thanks guys, appreciate your time this morning.

Bryan Maher: Thank you. Our next question comes from the line of Bryan Maher with B. Reilly Securities. Please go ahead.

Bryan Maher: Thanks, and good morning, everyone. Most of my questions have been asked already, but can I get a point of clarification on Stuart?

Robert Kiernan: I'm a little confused. So they paid for June, July, and August, but they haven't paid for March, April, and May. Is that correct? That's the 800 you're going after? That's correct. And are they physically out of the building with no intention of coming back to that building?

Robert Kiernan: The first part, for sure, they're out. The second part, I mean, it's...

Speaker Change: The first part for sure, they're out.

Jeffrey Busch: Okay, it seems curious that somebody would keep paying you, you know, June, July, and August if they have zero intention.

Speaker Change: most likely.

Speaker Change: Okay, it just seems curious that somebody would keep paying you, you know, June , July , and August .

Jeffrey Busch: It's hard that they haven't rejected these yet. We feel very optimistic that we could rent this out given that it is popular in the market. So therefore, you know, we're at the point now where, you know, we'd almost like them to reject it and get on with renting it and getting a new tenant in, because this is a very good facility. It's in the best part of town. It's a good medical market, actually.

Speaker Change: It's odd that they haven't rejected these.

Speaker Change: So therefore, you know, we're at the point now where, you know, we'd almost like them to reject.

Jeffrey Busch: And that's why we use the word, and we've been using optimistic out there, you know, but Stewart, I think we're just such a small part of it, and they're confused in their bankruptcy that they just haven't rejected it. But when they do reject it, we hope to be moving very quickly and get this solidified. Okay, but to be clear, the property is not being operated currently, and you cannot release it until they reject it or the bankruptcy court.

Speaker Change: And that's why we use the word, and we've been using optimistic

Speaker Change: You know, but Stuart, I think we're just such a small part of it.

Speaker Change: and get this solidified.

Robert Kiernan: Okay. My other question may be for Bob. You know, with how quickly interest rates have come down here and given the, you know, fairly short two-and-a-half years, you know, weighted average, you know, debt maturities, is there any opportunity for you to kind of move quickly to lock in some of these lower rates? Or, you know, Jeff, with your commentary, you seem to think rates might be going a little lower. Is that the view of the firm, to wait and hope for even lower prices from here?

Speaker Change: says so.

Jeffrey Busch: I think, um..., going lower. Um, you know, I think once they start talking about, you know, point, point and a half or so. So, you know, I think we have time and we could, you know, get a good rate in the future. If a recession happens, it will even go lower out there. Okay, thank you. That's all.

Stuart: I think, um...

Bryan Maher: Okay, thank you. That's all for me.

Speaker Change: Okay, thank you. That's all for me.

Operator: This concludes our Q&A session and today's SELE conference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Thank you.

Speaker Change: This concludes our Q&A session and today's teleconference. You may disconnect your lines at this time. Thank you for your participation.